1. It comes down to this… The success you have enjoyed has created a problem that will someday become very real for those you care about.

2. Succession Planning Taxes Federal Estate Tax Federal Estate Tax Oregon Inheritance Tax Oregon Inheritance Tax Ownership Structures Sole Proprietor Sole Proprietor General Partnership General Partnership “C” Corporations “C” Corporations “S” Corporations “S” Corporations Family Limited Partnerships Family Limited Partnerships Limited Liability Company Limited Liability Company

3. FEDERAL ESTATE TAX   This is a tax in flux – it will almost certainly remain, but not in it’s current form.

4. FEDERAL ESTATE TAX All assets, minus liabilities – i.e. “net worth.” Included: 1. R eal property 2. P ersonal property – cattle, equipment, cars, etc. 3. L ife insurance personally owned (death benefits) 4. A nything else with any incidence of ownership

5. FEDERAL ESTATE TAX (Current Law) In 2008 the first $2 million of assets/person is exempt; maximum tax rate is 45%. 2009 - $3.5 million 2009 - $3.5 million 2010 - $0 tax and no step up in basis 2010 - $0 tax and no step up in basis 2011 and after - $1 million (top tax rate of 55%) 2011 and after - $1 million (top tax rate of 55%) Probable legislation in 2009 – ultimate exemption $3-$5 million.

6. FEDERAL ESTATE TAX Excluded from tax: Unlimited marital deduction $2 million exemption per individual – $4 million per couple The exemption is wasted at first death if the estate is not properly structured. The exemption is wasted at first death if the estate is not properly structured.

7. TAXABLE ESTATE 100% - No Tax (Marital Deduction) SURVIVING SURVIVINGSPOUSE HEIRS Remainder of estate taxed up to 45% taxed up to 45% $2 Million – No Tax LITTLE OR NO PLANNING – All to Spouse

8. TAXABLE ESTATE Bypass Trust Trust SurvivingSpouse Income $2 Million – No Tax No tax (Marital Deduction) No tax $2 Million – No Tax Remainder of Estate taxed up to 45% taxed up to 45% Heirs BASIC PLANNING – Bypass Trust

9. FEDERAL ESTATE TAX Gift tax: Gift tax exemption is limited to $1 million. Annual gift exclusion $12,000/donee $12,000/donee No limit on number of recipients No limit on number of recipients Husband and wife can join in “split gift” - $24,000/donee Husband and wife can join in “split gift” - $24,000/donee

10. OREGON INHERITANCE TAX Decoupled from the Federal Estate Tax. Amounts over $1 million subject to tax. $7,500,000 exclusion for “natural resource property” – 2007 legislation $7,500,000 exclusion for “natural resource property” – 2007 legislation Oregon tax return may be required when Federal isn’t. Oregon tax return may be required when Federal isn’t.

11. OWNERSHIP STRUCTURES: 1. Sole Proprietor 2. General Partnership 3. “C” Corporations 4. “S” Corporations 5. Family Limited Partnerships 6. Limited Liability Company

12. SOLE PROPRIETOR Advantages: 1. O wner has complete control. 2. S imple to establish and operate. Disadvantages: 1. U nlimited personal liability. 2. N o continuity. 3. N ot easily transferable. Single owner in a business venture.

13. GENERAL PARTNERSHIP Advantages: 1. R elatively simple to establish and operate. 2. O ne level of taxation. 3. F ull control rests with partners. Disadvantages: 1. E ach partner fully liable for all business activities. 2. N ot always easily transferable. Two or more people combine ownership and business operations.

14. “C” CORPORATIONS Advantages: 1. L imited liability 2. C ontinuity 3. E asy to transfer ownership 4. T ax-free fringe benefits Disadvantages: 1. C omplex to establish and manage 2. 2 layers of taxation A separate entity with shareholders who may or may not be employees and managers; pays income tax as a separate entity.

15. “S” CORPORATIONS Advantages: 1. L imited liability 2. C ontinuity 3. E asy to transfer ownership 4. N o taxation at corporate level Disadvantages: 1. C omplex to establish and manage 2. O nly one class of stock, with limits on who can own stock 3. I ncome taxed to shareholders even if not distributed Similar to “C” corporations in most respects, but no taxation at corporate level.

16. FAMILY LIMITED PARTNERSHIP Advantages: 1. L imited liability for limited partners 2. C an transfer ownership without transferring control 3. S ignificant valuation discounts Disadvantages: 1. R elatively complex to set up and manage A form of partnership with a General Partner and one or more Limited Partners.

17. LIMITED LIABILITY COMPANY Advantages: 1. L imited liability 2. H igh degree of Flexibility Can choose to be taxed like a partnership or like a corporation. Can choose centralized management (FLP) or equal management (partnership). A business structure governed by an Operating Agreement with a high degree of flexibility in operations, allocation of earnings, distributions, etc.